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Health Care

1/22/2018

An affordable, innovative and efficient health care system is essential to ensuring a productive and competitive U.S. workforce, as well as a better quality of life for all Americans. As the providers of health care coverage to more than 178 million Americans, employers and the plans they provide to employees and their families are the bedrock of the U.S. health care system. Enacted in 2010, the Affordable Care Act (ACA) brought about major reforms in health care coverage in the United States, affecting both insured and self-insured employer-sponsored health care plans.

Although the ACA has expanded access to health insurance for an estimated 20 million Americans and the U.S. uninsured health rate is 11.7 percent (as of the second quarter of 2017), increasing health care costs continue to place a growing burden on individuals, U.S. businesses and the economy.

According to the 2017 Kaiser Health Benefits Survey, the average annual premiums for 2017 for employer-sponsored health insurance are $6,690 for single coverage and $18,764 for family coverage. The average single premium increased 4 percent and the average family premium increased 3 percent in 2017. In addition, the U.S. Department of Health and Human Services announced that in 2018 the health insurance premiums on the ACA’s Exchanges are expected to increase an average of 37 percent across the 35 states served by the federally run online market and that residents in eight states Alaska, Delaware, Iowa, Mississippi, Nebraska, Oklahoma, South Carolina, and Wyoming will only be able to choose health care coverage from a single insurer, after major national carriers such as UnitedHealth Group, Humana and Aetna scaled back their participation in the Exchanges. The continued increase in health insurance premiums is outpacing both inflation and wage increases, making health care costs one of the primary concerns of chief executives.

Despite the rising cost of coverage and the complexity of the ACA, there is little evidence that employers are planning to abandon health care coverage for their employees. Many organizations are changing health care benefits or turning to other health care design strategies, such as health savings accounts, private exchanges, wellness programs and disease management programs to manage costs. It is important that public policies support the efforts of employers to improve the affordability and quality of U.S. health care.

A number of provisions in the ACA attempt to address the burden of health care costs on employers. One provision aimed at lowering these costs—namely the 40 percent tax on health care benefits—will have a number of serious, unintended consequences.

Beginning in 2022, the 40 percent tax will be applied to the aggregate cost of employer-sponsored health insurance coverage for employees that exceed $10,800 for individual coverage and 29,100 for family coverage. The aggregate cost will apply to more than premiums paid by employers and employees and will include benefits such as contributions to health savings accounts, contributions to flexible savings accounts, wellness programs, onsite medical clinics and retiree (or surviving spouse) coverage. The application of this tax will discourage employers from offering these benefits, create disincentives for continuing to innovate and dissuade employers from providing more information to employees and their families on the cost and quality of care. According to the Kaiser Family Foundation, 53 percent of large employers anticipate having at least one plan affected by the tax in 2020, and 93 percent will be affected by the tax in 2026.

Employers are increasingly offering wellness plans designed to improve employee health, enhance productivity and help control health care costs. The ACA allows employers to provide financial incentives to participants in a wellness program of as much as 30 percent of the total cost of coverage when tied to participation in the program. The Equal Employment Opportunity Commission (EEOC) finalized regulations in May 2016 governing employer wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).

The ADA and GINA contain exceptions the prohibition of asking employees about their own health conditions or those of their family members when that information is collected as part of a voluntary wellness program. The EEOC's final regulations governing the treatment of employer wellness programs under the ADA and GINA are not entirely aligned with the ACA regulations. The differences between the EEOC's rules and the ACA regulations complicate the task of designing compliant wellness programs.

The final ADA wellness regulation includes standards on what makes a wellness program "voluntary." To be considered voluntary, an employer cannot require employee participation in the program. Nor can an employer deny coverage under any of its group health plan (or in particular benefit packages within its group health plan) for non-participation or limit the extent of benefits.

One of the most significant areas of misalignment with the ACA involves the calculation of the allowable financial incentives. Under EEOC's rules, the total allowable incentive (financial or in-kind) cannot exceed 30 percent of the total cost of self-only coverage. In contrast, the ACA authorizes incentives of up to 30 percent of the cost of coverage in which the employee is enrolled.

Under the final GINA wellness regulations, an employer may offer a limited incentive for an employee's spouse as part of a voluntary employer-sponsored wellness plan as long as each of the requirements concerning health or genetic services provided on a voluntary basis is met.

Consistent with the ADA final rule, the maximum total inducement for a spouse to provide information about his or her health status equals 30 percent of the total cost of the employee's self-only coverage.

Outlook: On March 2, 2017 a legislative proposal, H.R. 1313, the Preserving Employee Wellness Programs Act to encourage and reaffirm ACA compliant employer-sponsored wellness programs was introduced. The bill seeks to provide certainty to employers offering innovative ACA-compliant employee wellness programs and to eliminate confusion for employers offering employee wellness programs that lower health insurance premiums to reward healthy lifestyle choices. On August 22, the EEOC was ordered by the U.S. District Court for the District of Columbia to reconsider its wellness regulations. The EEOC is expected to release new rules in October 2019, and it could limit the incentives employers offer to induce employees to participate in wellness programs.

The Tax Treatment of Employer-Sponsored Health Care

According to a report from the Congressional Budget Office and the staff of the Joint Committee on Taxation, one of the largest revenue losses for the federal government is due to the preferential tax treatment of employment-based health care coverage. Under current law, the value of both employer and most employee contributions for health insurance are excluded from employee federal income tax and employer and employee payroll taxes. As such, the tax treatment of employer-sponsored health care benefits could come under scrutiny as lawmakers look to tax reform to make the tax code fairer and to generate revenue to pay for other/future health care initiatives.

In the 114th Congress, Speaker of the House Paul Ryan (R-WI) commissioned six committee-led task forces charged with developing a bold, pro-growth agenda. Among the priorities outlined is replacing the Affordable Care Act (ACA) and overhauling the tax code—both of which are important to the HR profession and could potentially impact employer-sponsored benefits.

Outlook: With Republicans in control of both Chambers of Congress, the White House efforts to repeal and replace the ACA will be a priority in the 115th Congress. On Thursday, May 4 the House of Representatives passed a bill to repeal and replace the tax provisions of the ACA. The bill, H.R. 1628 the American Health Care Act did not include any proposals to limit the tax treatment of employer-sponsored health benefits. The bill, did include a provision to delay the ACA excise tax to 2026, among other provisions. The bill includes several provisions of interest to the HR profession and the workplace, including a reduction to the ACA's employer mandate penalty and a delay of the 40 percent "Cadillac" tax on high-value employer-sponsored health benefits, among other provisions. On Friday, July 28, the Senate rejected the Health Care Freedom Act (also known as the "Skinny bill") by a vote of 49 to 51, ending immediate efforts to repeal and replace the Affordable Care Act (ACA). This proposal was offered as a substitute amendment to the House-passed H.R. 1628, the American Health Care Act (AHCA).

In addition, President Donald Trump signed an executive order on January 20, titled "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal." The order directs federal agencies that administer certain aspects of the ACA to waive or delay taxes, penalties and regulatory burdens on purchasers of health insurance "to the maximum extent permitted by law." Following up on his initialaction, Trump signed on October 12 another health care executive order Specifically, this executive order proposes to allow small employers to band together through an association health plan (AHP) to buy health insurance across state lines. Regulations currently stipulate that members of an association health plan must be in the same industry and must be involved in the day-to-day decisions of a business. Current law allows businesses that have employees in several states to buy insurance across state lines. This executive order also directs the U.S. Department of Labor to modernize its current interpretation of the Employee Retirement Income Security Act (ERISA), to allow the formation of AHPs. The executive order would also allow people to buy low-cost, short-term health insurance plans (currently limited to three months) and proposes to expand the use of health savings accounts.

Looking ahead, in the last Congress, a proposal to cap the excludability of employer-sponsored health coverage from taxation was floated. Specifically, the plan proposes to adjust the cap based on geography and omits employee contributions made on a pre-tax basis to an HSA from counting toward the cost of coverage for purposes of the cap. Given the preferential tax treatment of employer-sponsored health benefits and as Congress considers proposals to generate revenue to pay for other/future healthcare initiatives, employer-sponsored health care benefits will come under scrutiny.

Definition of Full-Time

Under the ACA, employers with more than 50 full-time employees are required to provide affordable group health insurance coverage to employees and their dependents or face financial penalties. The ACA defines a full-time employee as an individual who works an average of at least 30 hours per week. This definition is inconsistent with standard employment practices in the United States today, which typically define full-time employment as 40 hours a week or more, and other federal laws. As a result, some employers have opted to eliminate health care coverage for part-time employees to cover the costs of providing coverage to full-time employees, while others have reengineered staffing models to lower employee hours below the 30-hour threshold to avoid coverage requirements.

Outlook: Bipartisan, bicameral legislation to amend the ACA's definition of "full-time" employee has been introduced. Representatives Jackie Walorski (R-IN) and Daniel Lipinski (D-IL) introduced H.R. 3798, the Save American Workers Act, and Senators Susan Collins (R-ME) and Joe Donnelly (D-IN) introduced S. 1782, the Forty Hours Is Full-Time Act. These proposals would amend the Internal Revenue Code to modify the definition of a full-time employee from 30 hours to 40 hours of service per week for purposes of the employer mandate. The bill would not require employers to change their definition of full-time. Instead, the bill would provide employers the flexibility to determine what constitutes "full-time" (between 30 to 40 hours) for their business.

OTHER NEWS

Tax Reform

12/20/17

HR professionals design and implement comprehensive benefits plans in the workplace that attract and retain a skilled workforce. These benefit plans include health care and retirement plans, paid leave benefits, disability insurance, and employer-provided education assistance, and many others. When considering tax reform, Congress has had a particular interest in evaluating the tax-free or tax-exempt status of employee benefits that account for sizable losses in revenue to the federal treasury. Current tax reform efforts are seeking to make changes to employer-sponsored benefits including educational assistance programs, dependent care flexible spending accounts, adoption benefits, moving stipends, transportation vouchers and employee service awards. Eliminating tax incentives could dramatically affect an employer’s ability to offer a comprehensive benefits package to its employees.

House and Senate Republicans, and the Trump administration, are currently trying to lower the corporate tax rate, consolidate individual brackets and make other reforms to the tax system. To achieve these objectives, both chambers have proposed altering the current tax treatment of some employer-provided benefits, suggested changes to different aspects of retirement plans and expanded taxation on executive compensation. Both chambers have passed their versions of tax reform, H.R. 1, the Tax Cuts and Jobs Act, and released a conference committee report which will be voted on in each chamber the week of December 18, 2017. President Trump has said he would like to sign a tax bill before the holidays. Please view the comparison chart, provided by the Society for Human Resource Management (SHRM), for specific HR related details in the House, Senate and Conference Committee proposals.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

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